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Stock Strategist

RSP Permian: One of the Most Compelling Upstream Energy Opportunities

The firm's track record in the Midland Basin has been impressive and consistent.

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 RSP Permian (RSPP) has dramatically altered its outlook for 2017 and beyond with the acquisition of Silver Hill Energy Partners. At first, the $2.4 billion price tag looks lofty, and we have nudged our fair value estimate to $49 per share from $53. That's still significantly ahead of the current stock price, though, and we continue to believe that RSP is one of the most compelling upstream investment opportunities.

The deal, which closes in stages between the fourth quarter this year and the first quarter in 2017, adds 41,000 net acres in the Delaware Basin, pushing RSP's total Permian holding over 100,000 net acres. It will also provide roughly 15,000 barrels of oil equivalent per day of oil-weighted production and augment the firm's drilling inventory with 3,200 gross incremental locations (many of which are expected to yield recoveries of 1 million boe or better, though until we get more concrete data to verify, this asset is heavily risked in our model).

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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